Greece: the crisis continues (whether there is an agreement or not)

24 June 2015

Time is finally running out in the current act in the seemingly never-ending drama that is the Greek crisis: either there is an agreement to postpone the issue yet again for a few more months, or it is onward into a dark and unknown territory. Either way, there will be another act beginning very soon, and the crisis is nowhere near the end.

Over the past few days, the mood – observed from reading news reports – oscillated between cautious optimism and nervous pessimism: it is still impossible to divine whether there will be a deal come tomorrow morning (Thursday, 25 June 2015). Even if there were an agreement tomorrow, it may not be sufficient to prevent Greece from defaulting on its loan to the International Monetary Fund (IMF), as Greece will have to legislate the agreed prior actions through the parliament before the bailout funds can be released, and such release is also contingent the parliamentary approval in some countries, including Germany. However a default in such instance is not uncontrolled, and as there is a realistic prospect of additional money flowing to Greece soon, it would not be catastrophic.

An agreement will just keep Greece going for a short while, and given the economic situation and the repayment schedule, Greece will require yet another bailout package. Also, in the long term, some of the debt will have to be written off, though such would be a hard thing for the politicians to sell in countries where the electorate thinks that Greeks have been feckless.

If there is no deal, then Europe will be heading towards unchartered waters, and things will turn very bad for Greece very soon. The state will not be able to repay the debt due to the IMF, disburse wages to public sector workers, or pay out pensions. The European Central Bank (ECB) will not be able to sustain the Greek banks through the Emergency Liquidity Assistence (ELA): there will be capital controls and banking collapse. The country will in all likelihood leave the single currency.

No one wants ‘Grexit’, but not at any price any more: and it will be interesting if either side or both sides can budge further, after having made concessions, or if either side will fold after staring into the possible consequences of the failure to agree.